Public-private partnerships enter a new period

Ryan Kozak is a senior management consultant at Public Financial Management Inc.

Nearly four years after the technical conclusion of the Great Recession, municipalities, universities and other public sector entities are continually searching for ways to meet the burgeoning need for repair and expansion of facilities and infrastructure. In addition, local government bodies, facing sharply decreased tax revenues and lower state and federal funding, have searched for innovative ways to bridge funding gaps caused by mounting pension liabilities and increased costs of delivering needed services.During this same time, private sector capabilities and appetite for involvement in public sector projects has grown. The combination of these trends has led to a re-emergence of “P3,” or public-private partnerships, where public-sector assets are used in some fashion to meet facility demands and spur private sector development. While public-private partnerships are definitely not new, most industry participants see the last few years as a new era in P3.The new era of cooperation stems from new levels of cooperation and communication amongst the public and private sector. This has led to some of the most successful developments across the country, such as the Long Beach Courthouse in California, the Miami Port Tunnel in Miami and numerous college student housing facilities being built at public colleges and universities. P3 can take many forms, but to examine the scenarios where such developments make the most sense, one needs to consider a continuum of risk and control transfer between the public and private entities. The example case we can use is a university entity (public) that is looking to build student housing on existing university land, perhaps with a local developer (private).Public ownership/private management: In this scenario, certain elements of the project such as ownership may remain with the university, but perhaps many or all operating and maintenance responsibilities are contracted out to the private sector, normally through a competitive procurement process.Concession/availability payment for new developments: In this scenario, private developers design, construct, operate, maintain and finance a project in return for periodic lease payments from the university, based on performance. The university would be taking the position of offering up their land to private developers to meet the facility needs of the community; and at the end of an extended lease term (25 years or more); ownership of the improvements reverts to the university. This scenario is the most consistent with a true 'public-private partnership', as responsibility for delivery and operation of a public facility is transferred to the private sector.Between these two examples lies a spectrum of partnering relationships in which different elements of facility or service delivery are transferred from the public to the private sector. The degree of private-sector engagement in delivery of public service varies widely and is determined by state statutory framework, private-sector expertise and appetite for investment in particular services, and regional or local perception of the value or benefits of increased private sector involvement in public sector activities. Through thoughtful planning and transparency in motivation and expectations of returns by both parties, public-private partnerships will continue to help public and not for profit entities address tighter budgets and spawn local and sustainable private sector growth.Ryan Kozak is senior managing consultant at Cleveland-based Public Financial Management Inc.

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